In 2X19, Land Corporation acquired land by paying P2,000,000 and signing a note with a face value of P6,000,000. On the note’s due date, December 31, 2X21, Land owed P480,000 of accrued interest and P6,000,000 on the note. Land was in financial difficulty and was unable to make any payments. To solve the problem, Land and the bank agreed to amend the note as follows: • Extended the maturity to December 31, 2X23. • The P480,000 interest due on December 31, 2X21 was forgiven.
In 2X19, Land Corporation acquired land by paying P2,000,000 and signing a note with a face value of P6,000,000. On the note’s due date, December 31, 2X21, Land owed P480,000 of accrued interest and P6,000,000 on the note. Land was in financial difficulty and was unable to make any payments. To solve the problem, Land and the bank agreed to amend the note as follows: • Extended the maturity to December 31, 2X23. • The P480,000 interest due on December 31, 2X21 was forgiven.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
Problem 28E: On January 1, 2019, Northfield Corporation becomes delinquent on a 100,000, 14% note to First...
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In 2X19, Land Corporation acquired land by paying P2,000,000 and signing a note with a face value of
P6,000,000. On the note’s due date, December 31, 2X21, Land owed P480,000 of accrued interest and
P6,000,000 on the note. Land was in financial difficulty and was unable to make any payments. To solve the
problem, Land and the bank agreed to amend the note as follows:
• Extended the maturity to December 31, 2X23.
• The P480,000 interest due on December 31, 2X21 was forgiven.
• Land Corporation would be required to make an annual interest payment of P540,000 every December
31 starting 2X22.
• Transaction cost incurred that is directly related to the debt restructuring was P16,850.
As of December 31, 2X21, the yield rate based on the restructured debt and after considering the amount of
transaction cost is 6.24%.
5. What type of debt restructuring is being described by the case?
6. What is the total gain from restructuring?
7. What amount should Land Corporation report as gain, before income taxes, in its 2X21 profit or loss?
8. What is the carrying amount of the obligation that should be reported in 2X22 statement of financial
position ?
9. Provide the journal entry for debt restructuring on December 31, 2X21.
10. Assuming you are the finance manager of Land Corporation, are you in favor of the type of restructuring
that your company and the bank agreed to? Why?
11. Suppose the owner of Land Corporation wants an alternative to base his decision. Create a debt
restructuring arrangement using the other types of debt restructuring that would give greater benefit to
the company.
The first three questions already been answered
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